The surge in deposit rates, the wider interest rate gap for senior citizens, and special deposit schemes by banks have triggered a significant rise in deposits among senior citizens.
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Government initiatives such as increasing the limit and rate under Senior Citizen Savings Scheme (SCSS) and Mahila Samman Savings Certificate have also contributed to this trend.
The SBI Research Ecowrap report estimates that there are approximately 74 million term deposit accounts held by senior citizens in the country, with a total deposit amounting to Rs 34 lakh crores. This marks a substantial increase from the estimated 41 million accounts with a total deposit of Rs 14 lakh crores in FY19, indicating an 81% growth in the number of accounts and 143% growth in the deposit amount over a span of 5 years.
The average balance in these accounts has also seen a significant increase of 38.7%, rising from Rs 3.3 lakh crore to Rs 4.6 lakh crore.
One of the driving factors behind the surge in senior citizen deposits is the offer by banks to provide an additional 50 basis points over the card rate for the general public. Moreover, banks like SBI and HDFC have introduced special fixed deposit schemes with higher interest rates of 75 basis points for senior citizens compared to regular card rates. Additionally, schemes like SBI Green Rupee Term Deposit offer an additional 100 basis points for retail deposits with a tenure of 2222 days.
Recently, the Reserve Bank of India (RBI), in its maiden Monetary Policy Committee (MPC) meeting of the financial year 2024-25, kept the repo rate unchanged at 6.5% as it sought to maintain its focus on strengthening the economy.
This is the seventh consecutive policy meeting where it has chosen to keep the policy repo rate unchanged. Despite banks holding the rates since February 2023 the banks have been wooing deposits by increasing interest rates.
Public Sector Banks have led the way by offering competitive rates to depositors, “resulting in a shift in depositors’ behavior towards capitalizing on interest rate differentials between core and term deposits.” Out of the 74 million accounts, nearly 73 million fall within the range of up to Rs 15 lakh. Assuming a 7.5% interest rate on senior citizen bank deposits, approximately Rs 2.6 lakh crores in interest is earned.
The total interest earned by senior citizens is estimated at Rs 2.7 lakh crore, with Rs 13,299 crore from SCSS and Rs 2.5 lakh crore from senior citizen bank deposits. Assuming an average tax payment of 10% by senior citizens, the government stands to receive around Rs 27,106 crore in taxes from senior citizen deposits, as per the report.
In FY24, banking business witnessed robust growth in the second half, with bank credit increasing by 20.2% compared to 15.0% in FY23. Aggregate deposits also grew by 13.5% compared to the previous year’s growth of 9.6%. As per the report, Scheduled Commercial Banks have increased weighted average domestic term deposit rates (WADTDR) on outstanding deposits by 96 bps and weighted average term deposit rates on fresh deposits by 22 basis points while across banking groups, the pass-through to WADTDRs on fresh and outstanding deposit rates has been higher for Public Sector Banks / PSBs than Private Sector Banks / PVBs.
PSBs have imbibed the competitive spirit in true sense, offering optimal rates to discerning depositors as they galvanize to meet the surging credit demands from economy.
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A palpable shift in depositors’ behaviors has been the inclination to capitalize on interest rate differentials between core and term deposits, with the incremental share of TD increasing to 93% (estimated) and CASA share declining to 7% in FY24, as per the report.
